Over Your Head In Debt? What You Need To Know About Bankruptcy
Are you in a financial situation where you have too much debt that you simply cannot pay? If so, know that bankruptcy is a potential solution to your problem. Here are a few questions you're likely to have about bankruptcy before you decide to move forward with filing.
What Types Of Bankruptcy Are Available?
There are two main types of bankruptcy that individuals can pick from, which include Chapter 7 and Chapter 13. The main difference between these two is that Chapter 7 involves the liquidation of assets to pay off as much debt as possible, while Chapter 13 requires a repayment plan where you'll be paying off as much of your debts as you can over a set period of time.
How Does Bankruptcy Impact Your Credit Score?
The biggest downfall to using bankruptcy is that it will have a negative impact on your credit score. This can make it hard to borrow money in the near future as you recover from the bankruptcy process. Chapter 7 is going to have a longer impact on your credit score than Chapter 13 because Chapter 7 will discharge more debts.
Do You Have To Liquidate Everything?
Know that you won't have to sell everything that you own when you file bankruptcy. Some exemptions allow you to keep some assets, or at least hold on to a percentage of the value. These laws vary based on each state, which is why it is best to work with a bankruptcy lawyer that can better understand them.
For example, your state may have a cap on how much of your vehicle's value is exempt during bankruptcy. If you have a relatively cheap car, the entire value of the vehicle may be exempt and you get to keep it. However, a very expensive car would likely have to be sold, and you would keep the exempt value to put toward buying a new vehicle.
Can All Debts Be Discharged?
Unfortunately, it's not possible to discharge all of your debts when using bankruptcy. Things like student loans, child support, and taxes are not typically discharged, though there are some rare exceptions that can allow it. For example, student loans can be discharged if you have an unreasonable hardship that would make you unable to ever repay the loan, such as a disability.
Reach out to a bankruptcy law firm in your area if you have more questions about this legal process.